Global SCF Forum Update on Defining Supply Chain Finance

Do we really need to define factoring the cynic may ask? Or better yet, is supply chain finance a product or a concept?

Soon enough we will be informed when the industry representatives from the likes of the International Chamber of Commerce, Bankers Association for Finance and Trade (BAFT), Factors Chain International and several others produce definitions as part of the self proclaimed Global SCF Forum.

As I pointed out in a prior post, this has been tried before with some effort and little to show for it. This time around, the hope is that by harmonizing the supply chain finance nomenclature amongst several industry groups, a more productive conversation with regulators and investors can occur.

The outcome of this effort will not produce a rule book but an educational guide that will be useful not just to practitioners of trade finance, but corporates running procure to pay programs, procurement individuals with finance responsibilities, individuals charged with aligning finance and procurement and of course the investor and vendor world.

Look, it’s not a panacea. It seems a collection of existing SCF nomenclatures is a task (a Herculean one at that). I recall it took BAFT over 3 years to come up with theirs and not sure what anyone did with it.

Right now there are a lot of organizations arguing what does preshipment trade loans mean versus factoring, Asset based lending, and warehouse finance receipts.

I think the Global SCF forum needs to be careful not to only focus on trade finance, which only touches on a portion of the finance world. The world of trade credit and working capital is changing rapidly with marketplace lenders, P2P lenders, dynamic discounting, spot invoice auctions, unconfirmed invoice financing, etc.

I think it will be great to have this resource to standardize definitions for investors and regulators at a 10,000 foot level, but as I pointed here Trade Finance has a data problem. And that data problem is not easily addressable except at the regulator or national level. That is why I like what countries like Brazil and Mexico are doing digitizing their domestic trade. Its a game changer in more ways than solving tax leakage problems.